Stimulate the economy

OK - I've been thinking as I'm procrastinating this afternoon (I hate paperwork!): I think the way to kick start our economy might be a rather simple idea, but it's worth talking about:

As everyone is accutely aware that the mortgage industry is at a standstill with prices of homes dropping and a huge inventory of homes that are in foreclosure (and there will be more to come as the prices drop). Banks that have written off the bad debt in the last 12-24 months are still sitting on these off-book assets (once a company writes off the debt as an IRS loss to the company, crazily the company still retains the asset off book - meaning it's not on the office ledger - so any income from selling the asset is deemed as positive income to the company. Weird and strangely legal...). They are trying to sell the bank-owned homes at relative market prices - with some slightly at a really good deal. With the overall market sliding down to somewhat stable in the last 6 months. All things are stagnet. The banks have their billions in homes that they own with no revenue streams attached to them - unable to sell to anyone since those individuals can't get loans to buy the home anyway. It's locked down.

I think that the banks should lump them together (like they did in the S&L fallout in the early 1990's) and sell them at fire sale prices en masse. Take Las Vegas for instance which has one of the highest foreclosure rates in the nation (and inventory of foreclosed properties) - if the banks used an auction to sell off huge blocks of homes - for crazy prices - like a $400k house for $50k each, but the buyer has to purchase a thousand at a time ($50 million in a hunk). The banks would post immediate revenue and the wholesaler buyer gets a steal.

That new wholesaler could sell it to a middle man for $100-125k each - making a cool 100-125% on their money (probably instantly from the time of the purchase). That middle seller would then relist the homes for another 100% increase for a final listing price of $200-250k - about $150k under the previously listed price.

Now, the final purchaser would be inticed to purchase the home for under market value and then take occupancy - or take it on as a rental that would actually cashflow. The trick is that it would automatically deflate the value of the other homes in the neighborhood under our current home valuation scheme.

Currently there are approximately 1.5 to 2 million homes that are in the foreclosure inventory (could be as much as 2.5-3 million!). If the average home sold for a fire sale price of $50k, that would infuse $100 billion back into the system from the original purchase and another 300-500 billion by the time it was all said and done.

Now, the immediate question would come up about what affect this would have on current people who already own homes in affected areas. It is possible to think of it as a disaster relief package (not unlike a hurricane or earthquake). The government could issue disaster relief packages to homeowners in the hardest hit areas (those that have the greatest decrease in home values that are at least a decade away from posting positive flow from their loss). This could be funded with a special federal "sales tax" that is attached to the fire sale event. Make it 20% of each transaction. That would mean that the original buyer would pay $10k, the secon buyer would pay $20k and the third buyer would pay $40k. Keeping the overall value well under the "market" but would gross total of $70k per home transaction from wholesaler to final occupant.

That would allow for $140 billion in taxes to come in which could be used to fund the "disaster zones". Say 15 million households were affected by this - would net approximately $10k per household - cash. This would be weighted by the percent of overall drop in prices post shake out, but in the end would stablize the housing market, fill inventory and infuse cash to not only lending institutions, but also to the private citizens who are affected by the overall drop in price.

It's a win-win-win from where I see it. It eliminates inventory, stablizes the market and creates moving cash - which is where money is made! Let's get on it!